Home Bancorp Inc

NASDAQ:HBCP

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the Home Bancorp Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Home Bancorp's Chairman, President and CEO, John Bordelon; and Chief Financial Officer, David Kirkley. Mr. Kirkley, please go ahead.

[David Kirkley, executive]

Thank you, Kenneth. Good morning, and welcome to Home Bank's Second Quarter 2024 Earnings Call. Our earnings release and investor presentation are available on our website. I ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and our SEC filings.

Now I'll hand it over to John to make a few comments about the second quarter. John?

[John Bordelon, executive]

Thanks, David. Good morning, and thank you for joining Home Bank's earnings call today. We appreciate your interest in Home Bank as we discuss our results, expectations for the future and our approach to creating long-term shareholder value.

We reported second quarter net income of $8.1 million or $1.02 per share. And most importantly, a slight improvement in our net interest margin, which appears to have stabilized. The NIM came in at 3.66%, which was 2 basis points higher than the first quarter. We're cautiously optimistic that continued steady increases in asset yields and stabilization in our cost of funds will continue to support net interest income growth and improving margins even without any Fed rate cuts. We added $39.7 million of loans in the second quarter with growth in all sectors except for construction and land loans, which declined slightly.

Given the strong loan growth we had in the first half of the year, we're still anticipating that 2024 loan growth will be between 4% and 6%. The duration of higher rates appears to now be negatively impacting our loan pipeline, but we're optimistic that the forecasted rate cuts occur, we could see loan demand pick back up.

Deposits, including demand deposits, were stable from the last quarter after very strong growth in the fourth and first quarters. We're pleased to see $12.6 million of core deposit growth in our Houston market as our teams there brought over the operating accounts with a number of new clients. We relocated another one of our Houston branches and continue to look for opportunities to improve our coverage of the markets we serve by adding brick-and-mortar and talent.

Despite all the negative headlines, we here at Home Bank are actually seeing improvements in credit. In the past few months, we have had a $5 million construction loan go from nonperforming to performing with interest reserves after we work with the borrower who had -- we've known for years, to manage through some delays and cost overruns. We also recently resolved a nonperforming $3.4 million multifamily loan without any principal loss. And we feel very good about a nonperforming $4.7 million lending relationship that has about $2 million of equity behind it.

A year ago, David and I were in New York, and we were both struck by the number of high-rise buildings with empty floors. We just don't have that same problem in our markets. And I know most of our colleagues at other community banks feel the same way. We lend to people we know in markets we know. We're not making the loans that are being written about in the financial press.

Community Banking is about providing our shareholders with an attractive risk-adjusted return. We are not in the business of making loans that could result in huge losses on relationships that aren't the right fit.

Finally, before I turn it back over to David, I'd like to welcome Mark Herpin to the Home Bank team, where he joins as Senior Executive Vice President and Chief Operations Officer. Mark has had a long and successful career in community banking, and we look forward to his contributions at Home Bank.

I'd also like to congratulate Natalie Lemoine, our Chief Administrative Officer; and John Zollinger, our Chief Banking Officer on their promotions to Senior Executive Vice President of the bank.

With that, I'll turn it back over to David.

[David Kirkley, executive]

Thanks, John. Net interest income totaled $29.4 million in Q2, up $492,000 from the previous quarter. Loan growth continued at a 6% annualized pace during the quarter with new loans coming in at a rate of 8.25% compared to the 6.28% we earned on our total loan portfolio in Q2. Deposits were essentially flat quarter-over-quarter, which increased our loan-to-deposit ratio to 97.7%.

The pace of deposit migration has definitely slowed, and noninterest-bearing deposits actually increased by $4.3 million in the second quarter. We did experience declines in interest-bearing checking accounts and savings accounts, which were down about $25 million combined. This outflow was offset by an increase in money market and CD balances of $21 million. The outflows that we did see mostly occurred in April, coinciding with taxes.

The impact of the slow in deposit migration can be seen in the slower increases in the rates we are paying on our interest-bearing deposits, which increased by 17 basis points in the second quarter after having increased by 28 basis points in the first quarter, 40 basis points in the fourth quarter and 54 basis points in the third quarter last year.

Pages 11 and 12 of our investor presentation provide some additional detail on credit, which John has already covered. Nonperforming loans did decrease by $3.5 million in the second quarter to $16.8 million or 0.63% of total loans.

Provision expense for the quarter was $1.3 million, up $1.1 million from the prior quarter. Our allowance for loan loss ratio increased 1 basis point to 1.21% in the second quarter. There were no changes in our qualitative factors during the quarter, and we feel confident in our reserve levels.

We did have $510,000 or 8 basis points annualized and net charge-offs in the second quarter. These charge-offs were very much customer-specific issues and not industry related.

Slide 16 has some detail on our historic NIM and its components. As John mentioned, we're cautiously optimistic that NIM has bottomed out and should start to slowly increase from here. Loan yields have been steadily increasing due to a combination of loan growth and loan repricing. And with the reduced pace of increases in liability costs, our NIM has increased each month this quarter.

We have approximately $490 million of CDs maturing in the next 6 months. The majority of these CDs are in specials at rates a little north of 5%. So if rates and deposit mix remain unchanged, we could see flat to marginal declines in CD costs, where we have opportunities for more meaningful cost reductions if we do see rate cuts.

Slide 18 of the presentation has some additional details on noninterest income and expenses. Noninterest income increased by about $200,000 to $3.8 million and should be between $3.6 million and $3.8 million in the third and fourth quarters. Noninterest expense increased by $904,000 to $21.8 million due primarily to annual salary increases that took effect April 1. This was at the low end of our expectations.

We expect core noninterest expense to be between $22 million and $22.5 million in the third and fourth quarters. We were a little more aggressive with the buyback and repurchased about 77,000 shares at an average price of $37 per share in the second quarter, which equates to 92% of tangible book value excluding AOCI.

Slide 19 summarizes the impact of our capital management strategy has had on Home Bank over the last few years. We've grown adjusted tangible book value per share by 58% since 2018, increased our dividend by 67% since 2016 and repurchased 14% of our shares all while maintaining robust capital ratios, which positions us to be successful in any economic environment and take advantage of opportunities as they arise.

And with that, operator, please open the line for Q&A.

[Operator]

[Operator Instructions] The first question comes from Feddie Strickland with Hovde Group.

[Feddie Strickland, analyst]

John, you touched on this in your opening comments a little bit. I was just wondering if you can talk through a little bit more of the noninterest-bearing deposits. Obviously, a positive to see those grow. Is that really just success on the C&I side in Houston? Or was that more footprint-wide?

[John Bordelon, executive]

Well, I think what we're referring to there was mostly in Houston. We pulled out a team at the beginning of the year from another bank, and a lot of the efforts that happened in Houston came from that team. They're in a loan production office in the northwest section of Houston, and they've done a very good job of attracting new customers and our focus has been on the deposit side. So they've attracted some of that are loan and deposit and some of that are just deposit. So that was what we were highlighting there was the success of that new team.

[David Kirkley, executive]

We've also seen some growth in the DDA space and the [ Acadiana ] market as -- that market has been focused more heavily on the C&I business as well.

[Feddie Strickland, analyst]

And along the same lines, I mean, as we think about the type of loan growth you're looking for going forward, it sounds like you're focused on bringing in more C&I just given that it's more likely to come with deposits, correct?

[John Bordelon, executive]

Absolutely.

[Feddie Strickland, analyst]

Got it. And one last question for me. Just on share repurchases. I mean, do you think we'll see that potentially slow down a little bit if the share price kind of keeps moving upwards here? Or do you think that you'll still have some level of repurchases going forward? And just keep in mind some dry powder?

[David Kirkley, executive]

We would probably slow it down at the elevated -- or the higher prices that we've experienced over the last week and keep the dry powder.

[Operator]

[Operator Instructions] The next question comes from Joe Yanchunis with Raymond James.

[Joseph Yanchunis, analyst]

So with the NIM expansion appearing to occur a little bit ahead of schedule. Can you provide some of the puts and takes on what will drive the NIM in the second half of the year?

[David Kirkley, executive]

So one of the driving factors is, of course, loan growth and loan repricing. You can see on our slide deck on Slide 16, we've been consistently raising our loan yield by about 10 basis points each quarter and still expect that to continue as we still have a weighted average rate of our loan portfolio of 6.28% compared to what we're bringing on loans at 8.25%. So that's one component of it.

Second component of it is you're really seeing a slowdown in opportunities for deposits to reprice higher. There is still some deposit migration, but the vast majority of our CD portfolio has already repriced higher. We touched up on a little bit on the call when we said the CDs are already a little bit north of 5%, and our CD special rates are actually a little bit lower in some cases. So there's not as much repricing opportunities to occur on the CD and deposit space. So we think that the pace of loan yield increases is going to more than offset deposit cost increases.

[John Bordelon, executive]

Not to mention any movement by the Fed this year will contribute to the ability to [indiscernible] the deposits or maintain these deposits at a little bit lower rate. So we feel very comfortable in the fact that our CD rates should stabilize or head downward based upon what the Fed does.

[Joseph Yanchunis, analyst]

Understood. And we've heard some of your peers note some increased competition on deposits. Is that something you've experienced? And kind of how should we think about the near-term trajectory of deposit costs?

[John Bordelon, executive]

We haven't seen that much pressure. There are some one-offs here or there that we obviously take care of. But for the most part, most everyone in our market, I think there was one bank in the Houston market that was in the 5.25%, 5.375% area. But for the most part, we have not had any problem attracting deposits.

[Joseph Yanchunis, analyst]

Okay. And then if I could just sneak in one more here. So asset quality metrics improved pretty nicely in the quarter, though you elected to increase your reserve ratio. Can you discuss what really drove this thought process? And secondly, perhaps it's too early to call, but if we get a couple of rate cuts and the economy doesn't deteriorate. Would it be fair to say that criticized and NPAs might have already peaked?

[David Kirkley, executive]

Let me take the CECL question first. We really didn't decide to increase our allowance. It's just a mixture of the mix change in our loan portfolio quarter-over-quarter. And the duration, perhaps of new loans -- that's really it. We didn't change any qualitative factors. We didn't adjust -- make any adjustments with regards to any industry-specific qualitative factors. So it's just a function really of our loan portfolio changing.

[John Bordelon, executive]

As it relates to the remainder of the year, I'm very optimistic that there could be a little bit of issues as far as credit, but we're not really seeing it in any one particular industry or just individually. We've had a couple of one-offs here and there that have gone bad. It had really nothing to do with the economy, had more to do with the operators themselves. So we're feeling as though the economy is going to actually improve possibly in 2025 because of a lower rate environment.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to John any closing remarks. Please go ahead.

[John Bordelon, executive]

Once again, thank you all for joining us today. I'm very excited about the position the bank has gotten to at this point and look forward to the rest of the year and speaking to many of you in the next day or so. Thank you very much for attending. Have a good day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.